With Almost $0 in Revenues, How Long Can Air Canada (TSX:AC) Last?

With Air Canada, the speculation is rapidly shifting from “if it bankrupts” to “when it bankrupts.” Is there any hope of the country’s number one airline?

| More on:

In its news release for its first quarter’s result, Air Canada (TSX: AC) stated that we are currently going through the darkest period in the history of commercial aviation. In a way, this statement sums up how bad things really are for Air Canada, as well as airlines across the globe.

The company reported nearly $1.05 billion in losses in stark comparison to the $345 million in profits in the first quarter last year.

Air Canada has cut its second-quarter capacity for 2020 by 85 to 90%. It’s also considering retiring 79 of its older aircraft. These drastic measures can be seen as the company’s desperate attempts to stay afloat in these uncertain times.

But with almost no revenue coming in from passenger flights and no bright prospects of this situation changing anytime soon, how long can Air Canada last?

A dark future

Air Canada claimed that it would take them at least three years to recover their 2019 level capacity and revenue generation, once things start to settle down. It’s also taking measures to increase its unrestricted liquidity, which currently sits at $6.52 billion, according to the company’s quarterly report. While the company is doing whatever it can to stay afloat, it’s hard to say whether it will be enough.

One slight hope that Air Canada still has is the government’s aid. It might not be enough to provide a strong new pair of wings to the company, but it will likely keep the company from going bankrupt. It all comes back to the resume of regular air travel. The problem is that even when the pandemic is over, a lot of people might still steer clear of air travel unless it’s absolutely necessary.

These far-reaching effects of the pandemic are tough to predict, and they might have a lot of sway over the recovery of Air Canada and other airlines.

A risky stock

It wasn’t until a few months ago that Air Canada was one of the best growth stocks on TSX. And even while the sector is getting globally decimated, many investors with a strong appetite for risk believe that at current valuation, Air Canada offers a great buying opportunity.

This is something that I agree on. There might not be a better time to buy Air Canada, because if it does start to recover, it might not hit that low again in the coming years. But that’s a pretty big “if.” Because if it fails and goes into bankruptcy, the investors might lose everything in a win-big, lose-big bet.

Foolish takeaway

With almost no revenue generation, it’s hard for a debt-laden company like Air Canada to continue for long. Layoffs, restructuring, getting rid of dead weight, and shifting its focus to cargo flights can only do so much to keep the company going.

It’s hard to pinpoint a time in the future, but if airlines continue to see the current, diminished-level of air travel, even the end of May might bring more grim tidings.

Fool contributor Adam Othman has no position in any of the stocks mentioned.

More on Investing

dividends grow over time
Dividend Stocks

$10,000 Invested at 8% for 20 Years Could Become $46,610

$10,000 doesn’t need perfect timing to become meaningful wealth — it mainly needs time and compounding.

Read more »

Partially complete jigsaw puzzle with scattered missing pieces
Dividend Stocks

How I’m Structuring My $7,000 TFSA for Steady Monthly Payouts

Learn the importance of structuring your portfolio to achieve steady payouts and minimize risk through smart diversification.

Read more »

holding coins in hand for the future
Dividend Stocks

The Best Canadian Dividend Stocks for Passive Income

Given their resilient business models, reliable cash flows, consistent dividend growth, and healthy growth prospects, these three dividend stocks are…

Read more »

Business success of growth metaverse finance and investment profit graph concept or development analysis progress chart on financial market achievement strategy background with increase hand diagram
Dividend Stocks

TFSA Strategy: Turn $25,000 Into $130 in Monthly Passive Income

This TFSA strategy invests $25,000 across two monthly REITs to generate approximately $130 in tax-free passive income every month.

Read more »

dividends grow over time
Dividend Stocks

2 Dividend Stocks to Lock-In Right Now for Long-Term Passive Income

These stocks are off their highs and pay attractive dividends.

Read more »

investor schemes to buy stocks before market notices them
Dividend Stocks

Here’s a 6.6% Dividend Stock Trading Near a 52-Week Low

This Canadian stock currently trades just 2% above its 52-week low while offering a juicy 6.6% annualized dividend yield.

Read more »

stocks climbing green bull market
Dividend Stocks

This 5%-Yielding Dividend Stock Could Turn $20,000 Into $95.64 a Month

$20,000 can turn into nearly $100 a month in dividends, but only if the cash flow behind the yield is…

Read more »

Investor wonders if it's safe to buy stocks now
Bank Stocks

Is BMO Stock Still a Good Buy in September 2026?

BMO stock has pulled back after a strong rally, but improving adjusted earnings, credit trends, and shareholder returns could keep…

Read more »